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FISCAL POLICY

The FRBM Act
• Enacted by Parliament in 2003 to bring in fiscal discipline. • Received the President’s assent in August the same year. • UPA govt. had notified the FRBM Rules in July 2004.

FRBM Goals

Integrating FRBM Mandate in Budget Process

Budget Format

• Plan exp:– The expenditure of the government can be broken up into Plan and Non-Plan Expenditure. – Money given from the government’s account for the Central Plan is called Plan Expenditure. – This is developmental in nature and is spent on schemes detailed in the Plan.

• Non-plan exp: – covers all expenditure of government not included in the Plan. – It includes both development and non-development expenditure. Part of the expenditure is obligatory in nature, eg interest payments, pensionary charges, defence and internal security, transfers to States, etc. – Expenditure on maintaining the assets created in previous Plans is also treated as Non-Plan Expenditure

Revenue Budget
• consists of the revenue receipts of Government (tax revenues and other revenues) and the expenditure met from these revenues. • Tax revenues comprise proceeds of taxes and other duties levied by the Union. • Other receipts of Government mainly consist of interest and dividend on investments made by Government, fees, and other receipts for services rendered by Government. • Revenue expenditure is for the normal running of Government departments and various services, interest charges on debt incurred by Government, subsidies, etc.

• Broadly speaking, expenditure which does not result in creation of assets is treated as revenue expenditure. • All grants given to State Governments and other parties are also treated as revenue expenditure even though some of the grants may be for creation of assets. • Estimates of receipts included in the Annual Financial Statement are further analyzed in the document “Receipts Budget”. • The document provides details of tax and non-tax revenue receipts and capital receipts and explains the estimates.

• Trend of receipts and expenditure along with deficit indicators, statement pertaining to National Small Savings Fund (NSSF), statement of revenues foregone, statement of liabilities, statement of guarantees given by the government, statements of assets and details of external assistance are also included in Receipts Budget. • The document also provides the arrears of tax revenues and non-tax revenues, as mandated under the Fiscal Responsibility and Budget Management Rules, 2004.

Expenditure Budget
• Includes all types of expenditures performed b the government. • It includes Interest Payments, Defence Expenditure, Grants to State & UT Govts., Grants to Foreign Govts., Grants to Foreign Govts., Loans & Advances to State &UT Govts., Plan Expenditure, Non-Plan Expenditure of UT without Legislature

Taxation Direct Taxes…..
• Personal Tax:• It is the imposed on the income of individual which is derived from a variety of sources • The tax is progressive, proportional and regressive according of the tax rise, remains or falls with rise in income

• Corporation Tax:• It is the tax imposed on assemble profit of companies and unincorporated associations. • Calculated after interest but before dividend distribution. • Companies are also liable to pay tax on capital gains.

• Inheritance Tax:• It is the tax levied on transfer of wealth on death from the decreased individual to the other living • It is also sometimes called Death duty or Estate Duty

• Wealth Tax: • It is the tax imposed on the specified stock of assets held by an economic unit that yields or has the potential to yield income in some form

Indirect Taxes…
• Excise Duty: • It is the tax levied on the production of goods for home consumption. • It is generally central government at specified rates. • Custom Duty: • Impose on goods and services crossing international borders between two countries. • A country imposes tax on both import and export. • It is distributed in tariffs.

• Value-Added Tax: - • Central Sales Tax: • It is the general tax applied at each point of exchange of goods from primary production to final consumption • The full chain extends from the produce of raw materials of final consumer and covers both producer and traders • Value added at distribution, wholesaling and retailing. • In this form the prices become higher and the final consumer bears the whole tax. • Tax imposed on retail prices of goods at the point of sale. • Basically represents tax on all expenditures.

• The exemption limit is Rs.1,80,000 (earlier Rs.1,45,000) in case of resident women • The exemption limit is Rs. 225000 (Earlier Rs.1,95,000) in case of residential individuals of the age of 65 year or more • @ Education Cess of 3% is leviable on the amount of income tax and surcharge • Surcharge of 10% of the total tax liability is applicable where the total income exceeds Rs.10,00,000

Corporate Tax Rate
• Rate of corporate tax remain unchanged for both domestic and foreign companies • Domestic Company:-@ • Regular Tax is 33.99%*, MAT is 11.33% (book profit), DDT is 16.995% • Foreign Company:-# • Regular Tax is 42.23%* • @ 30.90% where the total income is less than or equal to Rs.10 million • # 41.20% where the total income is equal to or less than Rs.10 million

Change in Custom duty
• Peak rate of basic custom duty remain unchanged • Effective rate of custom duty has been reduced from 34.13% to 31.70% • Specified power project and high voltage power transmission projects to be liable to 4% SACD • NCCD will be imposed at 1% on mobile phones • Tariff rate for electrical energy has been introduced at Rs.2000 per 1000 KWH (earlier it was exempted)

2% with effect from 1 APR ,2008 Service tax remain unchanged at 12.36% Threshold limit for service tax exemption will be increased from 8 Lac to 10 Lac STT paid in respect of taxable securities transaction will now be allowed as a deductible exp. Levy of STT at the rate of 0.017% on option premium , payable by the seller and 0.125% on settlement price by the purchaser

• CTT will be charged from date that is to be • VAT has been introduced in Pondichery and
Uttar Pradesh effective 1 July 2007 and 1 Jan 2008 respectively. With this, all states in India have shifted to the VAT regime